Management Board Report on the Activities of the Cd Projekt Group In
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MANAGEMENT BOARD REPORT ON THE ACTIVITIES OF THE CD PROJEKT GROUP IN THE PERIOD BETWEEN 1 JANUARY AND 30 JUNE 2021 2 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE Disclaimer This English language translation has been prepared solely for the convenience of English-speaking readers. Despite all the efforts devoted to this translation, certain discrepancies, omissions or approximations may exist. In case of any differences between the Polish and the English versions, the Polish version shall prevail. CD PROJEKT, its representatives and employees decline all responsibility in this regard. Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) 3 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE Spis Treści 5 Brief description of the CD PROJEKT group 6 Activity profile 12 CD PROJEKT Group growth prospects 12 CD PROJEKT S.A. on the capital market 16 CD PROJEKT Group activity profile 17 Organizational structure of the CD PROJEKT Group 19 Disclosure of business segments, products and services, outlets, suppliers and clients 36 Disclosure of external and internal factors affecting further growth of the CD PROJEKT Group 37 Disclosure of factors which, in the issuer’s opinion, may affect its earnings throughout at least the coming quarter 38 Disclosure of significant agreements 38 Risk management at the Group 43 Financial results of the CD PROJEKT Group 44 Overview of key economic and financial indicators disclosed in the consolidated and separate financial statement 64 Corporate governance 65 Entity contracted to audit financial statements 65 Shareholders controlling at least 5% of the vote at the General Meeting 66 Agreements which may result in changes in the proportions of shares held by shareholders and bondholders 67 Information regarding the control system of employee share programs 68 Disclosure of the purchase of own shares 68 Company shares held by members of the Management Board and the Supervisory Board 69 Management structure 70 Composition of the Management Board of CD PROJEKT S.A. 71 Changes in the composition of the Management Board of CD PROJEKT S.A. 71 Composition of the Supervisory Board CD PROJEKT S.A. 72 Changes in the composition of the Supervisory Board CD PROJEKT S.A. 73 Corporate governance policies 73 Disclosure of significant legal proceeding Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) Key events in the first half of 2021 CD PROJEKT RED continued its work on updating Cyberpunk 2077, releasing 4 patches and 3 hotfixes1 Since 21 June the digital release of Cyberpunk 2077 is again available in PlayStation Store In March CD PROJEKT presented an updated strategy for the coming years, announcing – among others – parallel work on two AAA projects starting in 2022 In March CD PROJEKT signed a term sheet specifying the conditions under which it would acquire the Canadian Digital Scapes studio – a transaction ultimately finalized in July On 17 June 2021 Thronebreaker: The Witcher Tales came to Android devices CD PROJEKT paid out the highest dividend in its history – at 5 PLN per share WitcherCon – an event targeting fans of The Witcher universe – was organized together with the Netflix platform on 9 and 10 June 2021 The Witcher: Monster Slayer, a location-based mobile AR game by Studio Spokko, was officially released on 21 July 1 by the publication date of this report 01BRIEF DESCRIPTION OF THE CD PROJEKT GROUP 6 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE Activity profile CD PROJEKT S.A. (also referred to as CD PROJEKT or the Company), headquartered in Warsaw, conducts business activities on the dynamically growing global digital entertainment market. These activities have been ongoing for over 25 years under the CD PROJEKT brand name, and began by distributing foreign games in Poland (the corresponding activity segment, handled by the Group’s CDP.pl subsidiary, was disaggregated in 2014). Pivotal moments in the Group’s history came in 2002 with the establishment of the CD PROJEKT RED development studio, which initiated work on the Company’s first major RPG2 – The Witcher – as well as in 2008, with the launch of GOG.COM. The CD PROJEKT Group currently conducts operating activities in two key segments: CD PROJEKT RED and GOG.COM. 2 Role Playing Game – a storyline-driven game based on a consistent narrative. Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) 7 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE CD PROJEKT RED Developing and publishing videogames and tie-in products which exploit the commercial appeal of brands owned by the Company. GOG.COM Digital distribution of videogames via the Company’s proprietary GOG.COM platform and the GOG GALAXY application. During the reporting periods 97.9% of the CD PROJEKT Group’s sales revenues were generated by exports. Throughout the first half of 2021 North America and Europe accounted for 77.9% and 11.1% of the Group’s sales respectively. Map 1 The CD PROJEKT Group around the world Warsaw Wrocław Vancouver Berlin Seoul London Moscow Paris Kraków Turin Tokyo Shanghai Los Angeles Dubai São Paulo Headquarters (CD PROJEKT RED and GOG.com) Branch oces CD PROJEKT RED dev studio Media and community managers Local subsidiaries of the Group Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) 8 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE GROWTH STRATEGY In March 2021 a Strategy Update was published by the Group, defining its mission statement as follows: ■ To create revolutionary story-driven RPGs, which go straight to the heart of gamers from around the world; ■ To be counted among the world’s top three video game developers; ■ To ensure a lasting place for our brands in the global popular culture. The document also charts three major areas where changes and growth is expected: ■ RED 2.0 – the transformation of the studio will entail, among others, a change in its philosophy and approach to developing AAA games, implementing a more agile production cycle to enable parallel work on products representing two major franchises; changes in management practices and the work environment to foster expansion of the team and talent support, and changing ways in which the studio communicates with gamers; ■ Brand development – going beyond AAA RPGs and exploiting the appeal of both The Witcher and Cyberpunk through new products, collaborations, media types and formats, in order to further enhance the reach, recognition and strength of both brands; ■ Online development – changes in the long-term approach to online features in the CD PROJEKT Group’s ga- mes and establishing them as an important component of the Group’s future release portfolio while using GOG GALAXY to support the growth and mutual communication of global gaming communities. The Group’s solid financial backbone is one of the elements which will support its further growth, enabling it to maintain creative independence and seek new ways of improvement, both as a business and as a studio – thus realizing its mission statement. Aspects of the Strategy Update are explained in a presentation available on the Company website. Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) 9 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE Scheme 1 Videogame development business model at CD PROJEKT RED PRIORITY: GAMERS CREATION Honest and direct communication Prioprietary IP* and full control over with gamers. the creation process. Full control over message. Focus on two franchises and a limited number of projects. DISTRIBUTION Global reach – cooperation with handpicked distributors of box DEVELOPMENT editions. In-house team of Direct distribution of console and experienced developers who digital PC editions (including a consistently prioritize quality. proprietary distribution platform – GOG.com). PUBLISHING TECHNOLOGY Publishing independence Proprietary RED Engine technology underpins gamer-centric powering open-world RPGs. business philosophy. Solutions developed with future hardware innovations in mind. *Own brands The Witcher i Cyberpunk Management Board report on the activities of the CD PROJEKT Group in the period between 1 January and 30 June 2021 (all figures quoted in PLN thousands unless indicated otherwise) 10 CD PROJEKT GROUP BUSINESS ACTIVITY FINANCIAL RESULTS CORPORATE GOVERNANCE EMPLOYMENT The Group considers its team to be its greatest asset. We employ people who are passionate about developing world-class products and services. Their talent, involvement and motivation represent the human capital of the CD PROJEKT Group. They, along with their creative ideas, are the force behind the Group’s success. CD PROJEKT embraces diversity in the belief that a workplace which respects diversity is the cornerstone of openness and trust. This enables us to fully unlock the creative potential of our employees, which, in turn, translates into increased depth, innovation and appeal of our products. We also believe that diversity reinforces and enriches our organizational culture. This belief is enshrined in the CD PROJEKT S.A. Diversity Policy – an expression of basic values which apply to the Company and guide relations among its team members, key managers and members of the Management Board and Supervisory Board. CD PROJEKT is also a signatory to the Diversity Charter – an international initiative organized under the auspices of the European Commission, which obligates us to institute non-discrimination policies at the workplace, take action to promote diversity and involve team members and business partners in these activities.